and Sidney Webb, the Fabian gran-
dees, went to Russia and returned pro-
claiming Stalinism to be the way of
the future, Keynes was, as Nasar re-
counts, aghast. Asked to contribute to
an essay collection for Beatrice's eight-
ieth birthday, he said the only sentence
that came to him was "Mrs. Webb,
not being a Soviet politician, has man-
aged to survive to the age of eighty."
Astute conservatives
have sometimes acknowl-
edged that, fundamentally,
Keynes was one of them.
He came not to bury free
enterprise but to save it
from itself. "It is certain
that the world will not
much longer tolerate the
unemployment which . . .
is associated and in my
view inevitably associated with present-
day capitalistic individualism," he
wrote in his magnum opus. "But it
may be possible by a right analysis of
the problem to cure the disease whilst
preserving efficiency and freedom."
During the Second World War, some
economists hailed the introduction of
price controls and central planning;
Keynes viewed this policy as a tempo-
rary expedient that shouldn't be sus-
tained. He even had praise for Hayek's
controversial book "The Road to Serf-
dom" (1944), which compared war-
time Britain to Soviet Russia and Nazi
Germany. "Morally and philosophi-
cally," he wrote to Hayek, "I find my-
self in agreement with virtually the
whole of it."
Keynes's Republican critics, as you'd
guess, have more in common with him
than they let on. Representative Paul
Ryan, who is now railing against "the
discredited economic playbook of
borrow-and-spend Keynesian poli-
cies," was, as the commentator Jona-
than Chait has pointed out, a strong
supporter of cutting taxes on classic
Keynesian grounds-to boost spend-
ing and reinvigorate a struggling econ-
omy. In a February, 2001, hearing de-
voted to the fiscal proposals of the
recently elected George W. Bush,
Ryan said, "I like my porridge hot. I
think we ought to have this income tax
cut fast, deeper, retroactive to J an u-
ary 1st, to make sure we get a good
punch into the economy, juice the
56 THE NEW YORKER, OCTOBER 10, 2011
economy to make sure that we can
avoid a hard landing."
Both Democratic and Republican
Administrations have supported stim-
ulus programs; what they disagree on
is how to structure and pay for them.
Democrats, while pointing out that
such programs generate additional tax
revenues, have stopped short of claim-
ing that they are entirely self-financing.
Republicans have respected
no such limits in selling
the tax cuts they favor.
Going back to the writings
of Arthur Laffer, a Stan-
ford-trained economist
who advised President
Reagan, some of them
have claimed that tax cuts,
by prompting people to
work harder and invest
more, can actually reduce the deficit.
And where did Laffer get this idea? In
a 2004 article entitled "The Laffer
Curve: Past, Present, and Future," he
cited a passage of "The Means to Pros-
perity" in which Keynes wrote:
N or should the argument seem strange
that taxation may be so high as to defeat its
object, and that, given sufficient time to
gather the fruits, a reduction of taxation will
run a better chance than an increase of bal-
ancing the budget. For to take the opposite
view today is to resemble a manufacturer
who, running at a loss, decides to raise his
price, and when his declining sales increase
the loss, wrapping himself in the rectitude of
plain arithmetic, decides that prudence re-
quires him to raise the price still more.
Reaganomics, too, was a species of
Keynesianism.
But any attempt to categorize Keynes
along traditional left-right lines is apt
to founder. In his life and in his theo-
rizing, he delighted in paradox. As a
young man, he had affairs with men,
like the Bloomsbury exquisite Dun-
can Grant; at forty-two, he married a
Russian ballerina and settled down
with her until his death, twenty years
later. A critic of the British financial
establishment in the twenties and thir-
ties, he ended his days as one of its
pillars.
Even his great intellectual contribu-
tion-the notion that economies can re-
main in an "equilibrium" state with mass
unemployment-defies easy explana-
tion. How exactly does it come about?
Not simply because, as textbooks often
suggest, prices and wages get "stuck,"
maybe as a result of union contracts.
Keynes was convinced that, even if
wages and prices are flexible, the econ-
0my could remain mired. Any economy
was capable of what modem economists
call "multiple equilibrià': different stable
points of functioning, at levels ranging
from penury to prosperity.
In particular, Keynes understood
how a financially driven economy, like
ours, can go into self-sustaining down-
ward spirals (and upward spirals) under
the influence of crowd psychology and
chronic uncertainty about the future.
In the classical scheme of things, banks
and financial markets are treated as
abstractions, which effortlessly convert
savings (money) into investment (forms
of capital like factories or computers).
Keynes pointed out that the link be-
tween savings and investment was far
from straightforward. It relied on peo-
ple who are looking to make quick
profits, and who are susceptible to
shortsightedness, herd behavior, and
panic. "Speculators may do no harm as
bubbles on a steady stream of enter-
prise," he commented. "But the posi-
tion is serious when enterprise becomes
a bubble on the whirlpool of specula-
tion. When the capital development of
a country becomes a by-product of the
activities of a casino, the job is likely to
be ill-done."
The problem isn't that Wall Street
traders are reckless or stupid; Keynes
had a wary respect for their smarts.
The problem is that our investment
choices can never be truly rationalized.
"If we speak frankly," Keynes wrote,
"we have to admit that our basis of
knowledge for estimating the yield ten
years hence of a railway, a copper mine,
a textile factory, the goodwill of a pat-
ent medicine, an Atlantic liner, a build-
ing in the City of London amounts to
little and sometimes to nothing." Keynes
distinguished this sort of incalculable
uncertainty from quantifiable risk-
the risk, say, that your straight flush
will be trumped by four of a kind, or
that you will be killed at Russian rou-
lette. When you decide to build a fac-
tory or take a flyer on the stock market,
the arithmetic of probability and ratio-
nal decision theory provide no real
guidance. Such decisions can be taken,
Keynes wrote, only as a result of "ani-
mal spirits-of spontaneous urge to